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Sep 9, 2014

The Nonprofit Paradox

Case_studyAnyone who has worked with nonprofit organizations will be familiar with this paradox. And it’s killing nonprofit organizations as we speak.

A healthy donor database requires a significant investment in acquiring new donors each and every year to replace the inevitable lapsing of current donors. We all have seen the LTV on new donors. An investment in new donors generally breaks even sometime in year 2, and then those donors are profitable from year 3 onward.

The problem is that nonprofit organizations are only focused on the current fiscal year. And when budgets are tight (and when aren’t they) the first place they cut the budget is new donor acquisition.

And thus begins a descent into nonprofit hell.

The lack of new donors causes a decline in file size. And the decline in file size causes a decline in revenue – which causes a decline in budget, which will cause a cut in new donor acquisition the next year.

What happens at this point is the director of development leaves or is replaced.

There is one way to combat this. Development directors need be financially incentivized for growing the organization’s multi-year donor file in their third year of their tenure. The organization needs to do this so that there is an incentive for someone fighting for the future of the organization.

Without some incentive like this, the nonprofit paradox will continue to kill organizations.

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